One of the first questions a matrimonial lawyer hears from a prospective client is, "What percentage am I entitled to?" (or conversely, "how much is my spouse going to get?"). Equitable distribution means that the answer is usually, "it depends." Not all marital assets need be divided equally or alike. A growing number of cases, including a just-issued First Department decision, suggest that when business assets are at issue, the answer could be as low as 10 percent of the value of those assets.

The basic concept of equitable distribution is that, upon the divorce, marital assets—those acquired during the marriage—are going to be split between the parties. However, a non-titled spouse is not necessarily entitled to 50 percent of any or all the marital assets. Business assets are a particular case in point. In recent years, New York courts have acknowledged that business assets are in a class by themselves. Even where the non-titled spouse has made a moderate direct or indirect contribution to the business, he or she typically will not receive more than 30 percent of the value of the other spouse's business assets and the percentage may be substantially less, depending upon the facts.

One of the latest in this line of cases is a First Department decision, Cotton v. Roedelbronn, which was issued on March 26, 2019, and unanimously affirmed a distributive award to the wife of 10 percent of the largest marital asset: a business interest that was actively managed by the husband. I represented Mr. Cotton in that case. The Cotton case underscores the role of contribution in the equitable distribution of business assets and establishes a new factor for courts to weigh, namely the participation of the non-titled spouse in a "restrained lifestyle."

Business Assets Are Rarely Divided Equally

DRL §236 does not require "that the distribution of each item of marital property be on an equal or 50-50 basis." Arvantides v. Arvantides, 64 N.Y.2d 1033, 1034 (1985); see also Naimollah v. De Ugarte, 18 A.D.3d 268, 269 (1st Dept. 2005) ("Where the spouses' contributions to a marriage are unequal, the marital assets do not have to be divided equally.").

Moreover, "business assets are not to be routinely divided equally for equitable distribution purposes." Sykes v. Sykes, 43 Misc.3d 1220(A) (Sup. Ct. New York County, May 2, 2014), (Cooper, J.). Even in cases where the non-titled spouse has directly contributed to the business interests of the titled spouse, or has made extraordinary indirect contributions, the percentages of the business interests awarded to the non-titled spouse have topped out at around 30 percent, with spouses who contributed less receiving substantially lower awards in the realm of about 10 percent. See Capasso v. Capasso, 129 A.D.2d 267 (1st Dept. 1987) (20 percent awarded); Arvantides, 64 N.Y.2d 1033 (25 percent awarded); Peritore v. Peritore, 66 A.D.3d 750, 752-53 (2d Dept. 2009) (15 percent awarded); Charap v. Willett, 84 A.D.3d 1000 (2d Dept. 2011) (10 percent awarded); Giokas v. Giokas, 73 A.D.3d 688 (2d Dept. 2010) (10 percent awarded).

In Arvantides, the Court of Appeals affirmed the Appellate Division's reduction of the wife's share of the husband's dental practice from 50 percent to 25 percent. The court noted that the wife had made a worthy contribution as a homemaker, but stated, "there is no requirement that the distribution of each item of marital property be on an equal or 50-50 basis. …. The Appellate Division did not abuse its discretion, therefore, in taking account of the modest nature of plaintiff's contributions to the dental practice. When it is considered that plaintiff has also received an award of maintenance, medical expenses, insurance benefits and the more valuable of the two homes owned by the parties, the distribution cannot be said to be inequitable as a matter of law." 64 N.Y.2d at 1034.

In Holterman v. Holterman, 3 N.Y.3d 1, 8-9 (2004), the Court of Appeals held that the trial court had not abused its discretion by awarding the wife 35 percent of the husband's enhanced earning capacity in light of the "wife's economic and noneconomic contributions to husband's acquisition of his medical license and subsequent career, the termination of wife's career to raise the parties' two children and maintain the marital household, wife's absence from the job market for more than 17 years, the length of the marriage and wife's long-term health problems."

The party "seeking a distributive share of [marital] assets [must] demonstrate that they made a substantial contribution to the titled party's acquisition of that marital asset …" Kriftcher v. Kriftcher, 59 A.D.3d 392, 393 (2d Dept. 2009) (reducing wife's distributive award from 40 percent of husband's enhanced earnings to 10 percent in light of her "minimal contribution"); Miness v. Miness, 229 A.D.2d 520 (2d Dept. 1996) (affirming trial court's determination that wife did not contribute directly or indirectly to any appreciation in husband's business interest); see also Peritore, 66 A.D.3d at 751 (reducing wife's distributive award to 15 percent of husband's dental practice because she "made only indirect contributions" to the business). But see Flom v. Flom, 170 A.D.3d 440 (1st Dept. 2019) (court cited wife's at-home contributions in awarding her 50 percent of non-business assets).

The trial record is extremely important when assessing "contribution."

Wife in 'Cotton' Failed To Establish Contribution

In the Cotton case, the most relevant factor to the equitable distribution of the husband's business interests was the wife's "direct or indirect contribution" to the "acquisition" of marital property based on her "contributions and services as a spouse, … wage earner and homemaker." DRL §236 (B)(5)(d).

The evidence presented at trial showed that the wife did not contribute to a true economic partnership. Both the husband and his business partner testified that the wife was not directly involved in the business in any way and that the husband did not solicit her advice or input about business decisions. While the husband acknowledged that the wife accompanied him on some business trips, his testimony was that he brought her along because she otherwise had nothing to do at home and spent the time drinking to excess. The evidence, including telephone records, showed that when the husband traveled without her she would repeatedly call him all night long, interfering with his sleep the night before important meetings.

In terms of her contribution as a "homemaker," the unrefuted testimony was that the wife rarely cooked, they had a housekeeper who cleaned, and when they ate at home, he usually ordered take-out which he picked up. The husband testified—and the wife did not deny—that she was physically and verbally abusive toward him, throwing telephones at him and even dumping hot soup in his lap. One exhibit at trial was an email stating, just as the husband boarded a plane to return home from a trip, that she hoped the plane would crash.

As a "wage earner," the wife also made no contribution. The husband testified, and the wife did not deny, that she had refused to continue working after the parties married, despite having the credentials and experience to do so. At trial, the husband called a vocational expert to testify as to the wife's earning capacity and employment prospects should she return to the workforce following the parties' divorce.

The Special Referee who tried the case concluded, the motion court confirmed, and the First Department has affirmed that based upon the evidence and testimony reflecting her relative contribution, the wife should receive a distribution of 10 percent of the value of the largest of the husband's business assets, 40 percent of other business assets, and 50 percent of the assets they owned jointly in equal shares.

The First Department agreed that the court below had properly accepted the Special Referee's findings as to the value of the various business interests "since these values were within the range of the testimony presented at trial and were grounded on the credibility of the plaintiff's expert witness and his valuation techniques (see Peritore v. Peritore, 66 A.D.3d 750, 752 [2nd Dept. 2009]." The Appellate Division also affirmed the finding that the businesses were "actively managed and should therefore be valued close to the date of commencement of the action" (citing Heine v. Heine, 176 A.D.2d 77, 87 (1st Dept. 1992), lv. den. 80 N.Y.3d 753 (1992) and DRL §236(B)(4)(b)).

As to equitable distribution, the Special Referee awarded "10% of the marital property portion of the … business assets … rather than nothing, [because] some small contribution may be inferred from the fact that [the husband] continued to bring [the wife] along on business trips and introduce her to business partners through most of the nine-year marriage." The distribution of 10 percent of this asset was confirmed by the motion court.

When it came time to address the percentage share to which the wife was entitled, the Appellate Division said that there was "no support for defendant's claim that she was entitled to 50% of their marital value," citing Arvantides. The court accepted that much of the value of these businesses was primarily derived from efforts made prior to the marriage and that the defendant wife "made little, if any, contribution to the growth of these businesses. To the contrary, the evidence at trial indicated that the defendant at times acted as a hindrance to plaintiff's business dealings. Accordingly, the court was not required to divide these marital assets equally. (see id.)."

'Restrained Lifestyle' Is a New Factor

The Appellate Division in Cotton upheld the Special Referee's allocation of 40 percent of other business entities to the wife (she had sought a 50 percent distribution on appeal), based on the parties' "restrained lifestyle" during the marriage. These assets were "formed during the marriage using mostly marital funds" but the First Department noted that the wife "made no direct contribution to these business entities." Nevertheless, it affirmed the "provident exercise of discretion" in the 40 percent award to the wife "based on a finding that she shared in the parties' restrained lifestyle that allowed these particular investments to grow."

This is a rather unique concept. By not spending the business income, the non-working—and here, the non-contributing—spouse acquired a substantial interest just by "being there": acquisition by restraint. The result can only be justified in the context of the overall decision, and there was no cross-appeal on that issue.

Wife Did Not Call Her Expert Witness

The trial record in the Cotton case reflected that the husband had voluntarily paid all the wife's support, her legal fees and any expert fees she requested during the pendency of the action. The wife had hired a well-known valuation expert. Over $70,000 was paid by the husband to this expert for the valuation of the private businesses in which the husband had an interest. Nevertheless, the wife elected not to call the expert at trial.

The only expert to testify at trial not only valued the husband's business interests but also testified that the husband's participation in managing the business was not passive and that, accordingly, the appreciation of that business was not passive appreciation. His testimony was found credible by the Special Referee, and his valuations were adopted by the court.

The husband urged that an inference should be drawn from the fact that the wife had an expert witness available but chose not to call him. The Appellate Division seemingly agreed, remarking: "Notably, defendant, who retained her own expert to appraise plaintiff's business interests during the pendency of the action, failed to call the expert as a witness." This helped assure that the referee's findings as to the valuation of the assets would be affirmed.

Equitable Distribution Is a Flexible Concept

The Cotton decision is a continuation of the line of cases in New York demonstrating the flexibility of the equitable distribution law. New York courts are not constrained by a rigid statutory mandate, but rather are granted the discretion to weigh the various enumerated factors within the factual context of each case. This can be particularly relevant to the distribution of business assets, where spousal contribution is weighed heavily. The Cotton case adds to the body of authority that it may be equitable for a spouse to receive as little as 10 percent of business assets developed by the other spouse.

Peter E. Bronstein is managing member of Bronstein Van Veen LLC.